Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on July 26, 2019

KUALA LUMPUR: The strategic options to turn around loss-making Malaysia Airlines Bhd, including a stake sale, are likely to involve foreign entities following the hiring of Morgan Stanley as adviser for the national carrier’s next recovery plan, say analysts.

“Hiring a foreign investment bank without a Malaysia office portends to a likely sale transaction of some form of debt, equity or a mix, in the airline. It is also more likely to involve foreign-tinted entities,” Modalis Infrastructure Partners associate director Khair Mirza told The Edge Financial Daily.

Pointing to Morgan Stanley’s “modest” track record in restructuring airlines, he expects the US-based investment bank to come up with a strategic plan that is “more likely to be a financially-led rather than a business-led outcome”.

An aviation analyst from a foreign research firm, who declined to be named, concurred, noting that Khazanah Nasional Bhd’s latest move to appoint Morgan Stanley as adviser suggests that the sovereign wealth fund is seeking alternative options other than what the local suitors are offering.

“The appointment also signals that the government is serious about disposing of a stake in the airline this time,” he added.

Since March, there has been speculation about Gulf carrier Qatar Airways looking to invest in Asian airlines like Malaysia Airlines as the former looks to grow its network. Qatar Airways has holdings in IAG, Cathay Pacific and Latam Airlines Group SA.

On July 8, The Edge Malaysia weekly reported that various local private groups have expressed interest in helping the government turn around Malaysia Airlines including Najah Air Sdn Bhd (a six-man group led by former AirAsia Group Bhd chairman Datuk Pahamin Ab Rajab), tycoon Tan Sri Syed Azman Syed Ibrahim (of The Weststar Group), Jentayu Danaraksa Sdn Bhd (helmed by managing director Feriz Omar), and a group comprising former MAS employees and several private individuals led by corporate lawyer Shahril Lamin.

On Wednesday, Deputy Minister in the Prime Minister’s Department Datuk Dr Mohammad Farid Mohd Rafik confirmed a Bloomberg report that Morgan Stanley was brought in by Khazanah as an independent adviser for the airline’s new recovery plan.

“Hiring Morgan Stanley is a waste of public funds as it’s unlikely to address the fundamental problems afflicting Malaysia Airlines: poor management, inept strategy, misjudging the market and failure to plan for contingencies, among others,” said Endau Analytics founder Shukor Yusof.

He also pointed out that Morgan Stanley is not a consultant but an investment bank.

“While an investment bank is vital in helping its client raise capital, in the case of Malaysia Airlines I don’t see how it helps to generate value to the airline and to the Malaysian economy in general,” he said.

“Hiring Morgan Stanley shows Khazanah and the government are bereft of ideas. The irony is Khazanah is paying top dollar to Morgan Stanley to find solutions to problems it had created in the first place,” he added. Khazanah is the sole shareholder of Malaysia Airlines.

Shukor had recently proposed the setup of an independent task force to Prime Minister Tun Dr Mahathir Mohamad to assess takeover proposals received from potential investors, as well as give unadulterated opinions.

Likening the task force to the Council of Eminent Persons, he had suggested that it be placed under the purview of the Prime Minister’s Office where it can make recommendations directly to the prime minister, who is also Khazanah chairman.

On its part, Malaysia Airlines’ current management has already come up with a new long-term business plan (LTBP), but this is still awaiting approval from the Khazanah board of directors. The plan would see the national carrier achieve financial break-even by 2022 and generate enough income to cover the cost of capital for its operations two years later.

In his latest circular sent to staff last week, which was sighted by The Edge Financial Daily, Malaysia Airlines group chief executive officer Izham Ismail revealed that an Engineering People and Productivity (EPP) lab is underway to promote a lean and agile way of working to improve the airline’s efficiency and work delivery time.

“As we are solely owned by Khazanah and the government, any matter pertaining to acquisition is done at their level and it is beyond the management of Malaysia Aviation Group (the holding company of Malaysia Airlines).

“On our part, we have educated many stakeholders to encourage regulation of the market to ensure a level playing field in the market for airline players like us. Each of us have a role to play and it’s so important to support each other to make our entire plan works,” said Izham in the circular.

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